Tech Stocks Bounce, Euro Stocks Drop

By Nicholas Jasinski  |  Wednesday, September 7

Europain. Bond yields declined and stocks popped today, retracing some of recent sessions' moves. 

The 2-year U.S. Treasury note yield slipped 0.05 percentage point, to 3.45%, while the 10-year U.S. Treasury note yield fell 0.08 percentage point, to 3.26%. The 2-year closely reflects the market's expectation of the near-term direction of the Federal Reserve's benchmark interest rate, and remains near a multiyear high. The 10-year is more tied to long-term expectations of economic growth and inflation—and thereby interest rates.

The S&P 500 added 1.8% and the Dow Jones Industrial Average rose 1.4%. The Nasdaq Composite broke a seven trading day losing streak with a 2.1% surge today. Only four stocks in the Nasdaq 100 subset of the index closed in the red.

The Nasdaq Composite remains down almost 7% over the past eight trading days, however.

European stocks have been on a similar losing streak of late, with the multi-national STOXX Europe 600 index down some 5% in two weeks. That's on concerns about the growing economic fallout from the continent's energy crisis. Russia has been gradually reducing flows of natural gas to Europe in retaliation for sanctions imposed by the West over its war with Ukraine.

That has raised heating and energy costs for businesses and households and sets up for a difficult winter.

There could be more pain in store for European stocks. Barron's Avi Salzman has more:

War and an energy crisis have spooked European markets and sent stocks there down more than 25% this year. With the way things are going now, Goldman Sachs analysts expect electricity bills in Europe to triple by early next year over 2021 levels, boosting energy bills by a collective $2 trillion, or 15% of GDP. There are signs now that policy makers are planning to step in and help consumers and businesses survive the price hikes. That kind of government action can sometimes cause stock prices to snap higher again. But [Morgan Stanley’s chief European equity strategist Graham] Secker is warning investors that they shouldn’t be tempted to jump in too early...

Europe is already in a “borderline recession,” Secker said, and it’s entering a much more difficult period. “We are going into the weakest six months for the economic data,” he said. “I think as we move forward over the next few months, we will be in recession.”

It all puts the European Central Bank in a tough position, facing too-high inflation and a potential recession. The ECB is set to announce a monetary-policy decision tomorrow, with futures markets pricing in the greatest odds of an interest-rate increase of 0.75 percentage point. That would follow a 0.50 percentage point hike in July, which brought the ECB's target interest rate from negative 0.5% to zero.

Any increase tomorrow would bright the ECB's target rate above zero for the first time in over a decade. It could also help boost the Euro against the U.S. Dollar. Year to date the euro is down 12% vs the dollar, to a 1:1 exchange ratio.

Read more from Avi about the outlook for European stocks here.

DJIA: +1.40% to 31,581.28
S&P 500: +1.83% to 3,979.87
Nasdaq: +2.14% to 11,791.90

The Hot Stock: APA +11.9%
The Biggest Loser: SolarEdge Technologies -3.0%  

Best Sector: Utilities +3.1%
Worst Sector: Energy -1.2%